Aterian, Inc.

Item 1A. Risk Factors.

Risks Relating to Our Business

We have historicThe Aterian Transactions are subject to significant conditions, including stockholder approval; failure to complete these transactions could materially operated at a lossharm our business and our ability to continue as a going concern.

On April 27, 2026, we entered into an Asset Purchase Agreement with Trademark Global, LLC and we may never achieve or sustain continuous profit a Securities Purchase Agreement with David E. Lazar (collectively, the "Aterian Transactions"); however, there can be no assurance that we will obtain the necessary stockholder approvals or that other closing conditions will be satisfied. These transactions are subject to significant conditions, including the receipt of stockholder approval for the Asset Sale and the issuance of Common Stock upon conversion of the Preferred Stock, as well as our ability or positito achieve specific contribution margin targets. If the Aterian Transactions are not consummated, we will have cash flows. incurred substantial legal, accounting, and advisory fees without the benefit of the $25 million in total anticipated gross proceeds, and we may be required to pay a termination fee of $1.1 million and reimburse up to $0.6 million of expenses under certain circumstances. Furthermore, our independent registered publcurrent liquidity position and our ability to remain in compliance with the covenants of our MidCap Credit Facility are significantly dependent on the closing of these transactions. A failure to close would likely impair our ability to continue as a going concern, and during the pendency of these transactions, we face ongoing operational risks including potential disruptions to business relationships with customers such as Amazon, Walmart, and Target, as well as broader macroeconomic hurdles.

The strategic accouninvestment made by David E. Lazar will result in a change in control and significant dilution of existing firm included an explanatory paragraph in its report on our consolidated financstockholders, giving a single investor outsized influence over our corporate strategy.

Existing stockholders will experience immediate and substantial dilution and a change in control as a result of the Aterian Transactions. Upon the Second SPA Closing and the subsequent conversion of the Series AA and Series AAA Preferred Stock, Mr. Lazar is expected to hold approximately 95.13% of our fully diluted share capitalization. This extreme concentration of ownership will give Mr. Lazar significantly outsized influence over our corporate strategy and all matters requiring stockholder approval, including the election of directors and the approval of significant corporate transactions. The interests of Mr. Lazar may differ from the interests of our other stockholders, and his ability to control the Company may have the effect of delaying or preventing a future change in control or other mergers that other stockholders might consider favorable.

The Company will dispose of substantially all of its revenue-generating assets upon the closing of the Asset Sale, and our future viability is subject to the successful execution of an unproven strategic pivot.

The Company will not have any material statements as of abusiness assets following the consummation of the Asset Sale, as the sale to Trademark Global constitutes a sale of substantially all of our assets and revenue-generating operations, including our marquee brands. Consequently, our future viability will depend fentirely on our ability to identify and consummate a "Post-Investment Transaction" or the year ended December 31, 2024strategic "Pivot," which involves combining with a target company to create future growth opportunities. We may not be able to identify a suitable target company before our capital resources are depleted, and even if we do, that raised subsere is no assurance that such a transaction will be successful or achieve anticipated benefits. Additionally, the final amount of net proceeds we receive from the Asset Sale remains subject to substantial doubt about our auncertainty due to potential adjustments for net working capital, the satisfaction of unforeseen liabilities, and ongoing operational costs. There is also no guarantee that the Contingent Value Rights (CVRs) issued in connection with potential tariff refunds will result in any future cash payments to stockholders.

Our ability to continue as a going coretain key personnel may be adversely affected by the pending Asset Sale and our transition to new executive leadership.

The consummation of the Asset Sale and the strategic investment is subject to several conditions that may not be satisfied, including the receipt of stockholder approval. The uncern.

We have experienced significant after-tax losses for the three atainty regarding the successful completion of these transactions, as well as the transition of leadership following the Second SPA Closing, may create significant anxiety regarding our future direction and ownership. This uncertainty could lead to increased employee attrition and further hinder our ability to attract and motivate key personnel. Additionally, the Asset Purchase Agreement requires the Company to maintain certain contribution margins, and any failure to meet these financial thresholds could jeopardize the closing of the sale, potentially impacting our ability to retain well-qualified employees.

Following the Second SPA Closing, David Lazar is expected to be appointed as the sole Chief Executive Officer, succeeding Arturo Rodriguez, which represents a significant shift in our senior management team. The loss of one or more of our key personnel during this transition period, or our inability to promptly identify suitable successors, could have an adverse effect on our business. Each of our executive officers and nine months ended September 30other employees could terminate their employment relationship with us at any time.

We have historically operated at a loss and we may never achieve or sustain continuous profitability or positive cash flows. Management has determined that there is substantial doubt about the Company's ability to continue as a going concern.

We have experienced significant after-tax losses for the three months ended March 31, 20256 and 20245. In addition, our costs have increased historically and may increase further in future periods, which could negatively affect our future operating results and ability to achieve and sustain long-term ongoing profitability. For example, we may need to continue to expend substantial financial and other resources on the ideation, sourcing and development of products, our technology infrastructure, research and development, salessales and marketing, international expansion and general administration, including expenses related to being a public company. We have had to rely on a combination of cash flow from operations and new capital in order to sustain our business. DespiteEven the fact thatough we have raised significant capital, there can be no assurance that we will ever achieve long-term continuous profitability. Even if we do, there can be no assurance that we will be able to maintain or increase profitability on a quarterly or annual basis. Failure to achieve or sustain profitability could have a material adverse effect on our business.

Our growth strategy has resulted in operating losses and negative cash flows from operations that raise substantial doubt about our ability to continue as a going concern. Our independent registered public accounting firm included an explanatory paragraph in its report on our consolidated financial statements as of and for the year ended December 31, 20245, that raised substantial doubt about our ability to continue as a going concern. If we are unable to continue as a going concern or maintain our financial covenants with our lenders, we may have to make significant changes to our operating plan, such as delay expenditures, reduce investments in new products, reduce our sales and distribution infrastructure, or significantly reduce our business. Further, if we are unable to continue as a going concern, we may be forced to liquidate our assets and the values we receive for our assets in liquidation or dissolution could be significantly lower than the values reflected in our financial statements.

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Incr efforeased costs to grow our business through new products, marketplace and geographic expof raw materials, energy, labor, transportation may not be successful and may and platform fees charged by marketplace a significant strain on os may adversely affect our management and business, operationalng results, financial condition, and other resources.

Our long-term success depends on our acash flows.

Significant increases in the cost and/or reductions in the availability to develop and commercof raw materialize a continuing stream of new products, to exps, energy, labor, transportation, and both to new marketplacincreases and geographiein tariffs and to leverage new technologiplatform fees charged by marketplaces we mahave negatively incorporate into mpacted our business. We have entered, operating results, financial condition, and expect to cash flows and may continue to enter new produnegatively impact categories and both new marketplaces and geographies for which we have limited or no experience. In part we rely on Amazons global reviews program for success in our internatsuch items in the future. Our contract manufacturers purchase significant amounts of metals, plastics and other materials to manufacture our products. In additional expansion. If that program were, they also purchase significant amounts of electricity to be limited, reducsupply the energy required or discontinued, our international expansion would be negatively affein their production processes. Global political instabilities, including the Iran conflict, are expected. We also to result in part rely on our ability to include newhigher metal, plastic, electric, transportation and products as variations to existing listings on Amazon. If costs, and may increase our cost of goods sold in that strategy were no longer possible for whatever reason,e near term or impair our ability to launch new obtain products could be mat marketable rateris or at ally affected. That strategy could also have unanticipated or unexpected negative . We are heavily dependent on inbound sea, rail and truck freight. Disruptions in the global supply chain and freight networks, has, and may consequences. Our efforts to growtinue to limit inbound and our business place significant strain on our management, personnel,tbound shipment capacity and increase our cost of goods sold and certain operations, systems, financial resng expenses. Further, the marketplaces on which we sell ources, and internal financial control and repo products charge fees for selling, storage, advertising functionsand fulfillment, among other things. We ll of which have limited personnel and resourceshistorically increased, and have reduced headcount signwe expect will continue to increase. Specificantly in lly, recent years. Iincreases in order to accomplish our growth goals, our team is required to focus on such growth venturesil prices have contributed to higher marketplace fees. The cost of raw materials, energy, labor, and reallocate their time and other resources, creating risk in all aspectstransportation represents a significant portion of our business. We face the risk that we will be unable to disrupt incumbents and thatcost of goods sold, while platform fees charged by marketplaces represent a significant portion of our competitors will introduce new and better producoperating expenses; these costs that competeare not with us. There are numerous uncertainties inherent inin our control and we have had limited successfully develop passing and commercializthese on to customers. Our business, operating new products on aresults, financial continuing basisdition, and new product launches may not delicash flows could be adver expesely affected growthby future in salcreases or operating resulin any of these costs. Any new product that we develop and market may not be introduced in a timelydditionally, the loss or disruption of essential manufacturing and supply elements such as raw materials or cost-effective manner, may contain defecother finished product components, restricted transportation or increased freight costs, errors, quality reduced workforce, or other issues, or may not achieve the markmanufacturing and distribution disruption could adversely impact our ability to meet acceptanceour customers necessary to generate sufficient revenue or may never become profitable. If weeds. Furthermore, it is not practical for us to mitigate our exposure to, nor are unwe able to develop and introduce a continuing streamaccurately project the possible effect of competitive new products, it may have an adverse effectforeign currency exchange rate fluctuations on our business, operating results, financial due to our condition, and cash flows. Our failure to successfully execute on our growth initiativstantly changing exposure to various foreign currencies and the difficulty in predicting fluctuations in foreign currency exchange rates can negrelatively impact our financi to the U.S. Dollar.

Recent escalations in geopolitical results, financialtensions in Iran, including significant condimbat operation,s and cash flows.

We may be unable to attract, retain or motivretaliatory strikes involving the United States and regional powers, have create key personnel, which could harm our business.

Our future success depends on our continuing ability to attract, motivated substantial volatility in global energy and shipping markets. This conflict has led to disruptions in critical maritime routes and retain well qualifiincreased the risk of spiked employees. Competition for well-qualified employeesfreight insurance premiums and fuel surcharges for in all aspecbound shipments offrom our business is intense globallyAsian suppliers. The loss of one or more ofse macroeconomic pressures pose a direct threat to our key opersonnel oating results and could specifically impair our inability to promptly identify a suitable successor to a key role, including through a succession plan, could have an adverse effect on our businessachieve the contribution margin targets required as a condition to the closing of the Asset Purchase Agreement with Trademark Global. Further, the Compmore, any recently announced a restrsustained increase in shipping costs or delays in producturing whereby a number of employees positions with the Company were terminated, which availability would exacerbate the liquidity constraints that have historically affected our business and could have a negative effect oninterfere with our ability to retmain and motivate tain compliance with our personnel. Each of our executiveexisting credit facility prior to the anticipated influx officers, key personnel and other employees could termina capital from the Aterian Transactions. If we are unable to successfully navigate their employment relaese disruptionship with us at any time. Moreover, we rely on s, the failure to close the pending Asset Sale and Stock-based compensation as a method to attract, retain and motivate Sale would have a material adverse effect on our financial condition and our employees. If our common stockability to continues to be volatile or as a going concern.

We depressed, we may be unable to attract, retaend on third-party suppliers for all of our products, most of which are located in aAsia, and motivate employees, and if this occurs, it any inability or delay in obtaining products from such suppliers could have a material adverse effect on our business, operating results, financial condition, and cash flows. W.

We are do not currependently maintain key person life insurance policies on any member of our senior management team or on third-party suppliers such as contract manufacturers and third-party logistics providers any other key employees.

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Td carriers for the Companys use of artificial intelligence technologies may not achieve intended results and could expose us to omanufacturing and distribution of our products and any disruption to our supply chain, even for a relatively short perational, competitiviod of time, regulatory, andcould cause a loss of reputational risks that mayvenue, which could adversely affect our business, operating results, financial condition, and results of operations.

Artificial intelligence (AI) is an emerging area of technologycash flows. Our ability to select reliable suppliers that may increasing provide timely influence aspectdeliveries of e-commerce and digital operations. While AI has the potential to  quality products will improve efficiency, enhanceact our success in meeting customer experience, demand streamline conte. Further, for a number of our significant creation, it also presents various unproducts, we only have a single-source of supply (such as for certainties dehumidifiers) and potential risks. We have made limited use of Generatiin general we do not have AI to date, primarily in customer service, software development and business intelligence,contracts with our contract manufacturers covering costs and may expand its use iproduction the future. Therat we believe we can be no assuranenforce that our AI initiatives will be successful or that they without undue effort or cost. Any suppliers inability or unwill not leadingness to unintended consequences.

Thetimely deliver products that meet development, implementsired specification, and oversight of AI technologis or any unanticipated changes involve suppliers complexitiesuld be disruptive and potential challenges. Errors, biases, or flaws in AI algorithmswhether developed incostly and it is unlikely that we will be able to effect alternally or provided by third partiescould resulttive arrangements on a timely basis, or in inaccurate responses to customers, poor user experiences, or inappropriate or misleading content. These issues could negatively impact our brand reputation, customer trust, and overall business performance.

Addthe case of manufacturing certain of our significant products, at all. Any significant failure by us to obtain quality products, in sufficient quantitionally, AI ises, on a timely basis, an area of rapid technological advancement and evolving competid at an affordable cost or any significant delays or interruption. Other e-commerce companies may adopt or develop mors of supply would have a material adverse effective AI-based solution on our business, which could place us at aoperating results, financial competnditive disadvantage. Moreover, the legal and regulatory landscape surrounding AI continueson, and cash flows.

As most of our product suppliers are based in China, our business is subject to develop. Emergadditional risks including laws or regul, among others: currency fluctuations could impose new compliance obligations,; labor unrest; potential political, economic and social instability; require changes to how we deploy or monitor AI, or result in unforeseen costs or operstrictions on transfers of funds; import duties and quotas; changes in domestic and international disruptions.

We also rely in part on third-party vendors that integrate AIcustoms and tariffs, including embargoes and customs restrictions; uncertainties intovolving the toolscosts to transport and services theywarehouse provide to us. Because we may have limited visibility or control overducts due to the dynamic nature of these systems, any technical errors, data privacy issues, or global supply chain; unexpected changes in regulatory noncompliance by such vendors could negatively affect our operations.

Any of these factorswhether related to internal AI use, reliance on third-party systems, competitive developments, or regulaenvironments; regulatory issues involved in dealing with foreign suppliers and in exporting and importing products. The foregoing factory changescs could have a materially and ad adversely a effect on our business, operating results, financial condition, and results of operationcash flows.

If our products experience any recalls, product liability claims, or government, customer or consumer concerns about product safety, our reputation and operating results could be harmed.

Our products are subject to regulation by the U.S. Consumer Product Safety Commission (the CPSC) and similar state and international regulatory authorities, and these products sold on our platform could be subject to involuntary recalls and other actions by these authorities. Concerns about product safety including concerns about the safety of products manufactured in developing countries, could lead us to recall selected products. Recalls and government, customer or consumer concerns about product safety could harm our reputation and reduce sales, either of which could have a material adverse effect on our business, results of operations, financial condition and prospects. 

In February 2026, we announced a voluntary recall in coordination with the CPSC for approximately 195,000 units of our PurSteam Mighty Lil Steamers and Elite Travel Steamers due to reports of hot water expelling from the nozzle. We have incurred, and expect to continue to incur, costs related to this recall, including refund payments and legal expenses. As a result of this recall, a putative class action complaint, Sarah Brannon v. Aterian, Inc., was filed against us on March 6, 2026, in the U.S. District Court for the District of New Jersey. The complaint alleges various violations, including breach of implied warranty, unjust enrichment, and violations of the New Jersey Products Liability Act. While the Company ceased selling these steamers in 2024, the defense of this existing litigation, and the potential for additional product liability or class action lawsuits, could result in significant legal expenses, settlements, or judgments. Furthermore, these developments could damage the reputation of the PurSteam brand, leading to a loss of consumer trust and a permanent decline in revenue for this product line.

On May 13, 2026, the company entered into a settlement agreement and general release to resolve this litigation. Under the terms of the agreement, the company agreed to pay a total settlement sum of $100,000 in exchange for a full release of all claims related to the purchase and use of the products. The agreement stipulates a voluntary dismissal of the claims with prejudice and includes customary provisions regarding confidentiality, non-disparagement, and a denial of any wrongdoing or liability by the company.

We may be subject to product liability claims if people or property are harmed by the products we sell. Some of the products we sell may expose us to product liability claims and litigation (including class actions) or regulatory action relating to safety, personal injury, and death or environmental or property damage. 

Although we maintain liability insurance, we cannot be certain that our coverage will be adequate for liabilities actually incurred or that insurance will continue to be available to us on economically reasonable terms, or at all. In general, our agreements with members of our supply chain do not indemnify us from product liability for a particular product, and some members of our supply chain may not have sufficient resources or insurance to satisfy their indemnity and defense obligations. 

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Any failure by us or our vendors to comply with product safety, consumer protection or other laws, or our standard vendor terms and conditions, or to provide safe factory conditions for our or their workers may damage our reputation and brand and harm our business.

The products we sell to our clients are subject to regulation by the CPSC, the Federal Trade Commission (FTC) and similar state and international regulatory authorities. As a result, such products could be in the future subject to recalls and other remedial actions, including the manner in which we market our products. Product safety or labeling concerns may require us to voluntarily remove selected merchandise from our inventory. Such recalls or voluntary removal of merchandise can result in, among other things, suspension of our seller accounts on Amazon and other online marketplaces, lost sales, diverted resources, potential harm to our reputation and increased client service costs and legal expenses, which could have a material adverse effect on our operating results. 

Some of the products we sell may expose us to product liability claims and litigation or regulatory action relating to personal injury or environmental or property damage. Although we maintain liability insurance and have implemented a quality assurance program that includes obtaining necessary certifications, we cannot be certain that our coverage will be adequate for liabilities actually incurred or that insurance will continue to be available to us on economically reasonable terms or at all. In addition, our agreements with our vendors in general do not indemnify us from product liability for a particular vendors products or our vendors may not have sufficient resources or insurance to satisfy their indemnity and defense obligations.

Our Credit Facility contains various restrictions and covenants that could limit our operating flexibility, and we may be unable to refinance or repay our Credit Facility. We also rely on credit export insurance for our vendors in China, the unavailability of which could have a material adverse impact on our business, operating results, financial condition, and cash flows.

On December 22, 2021, we obtained a revolving credit facility from Midcap Funding IV Trust (the Credit Facility). Our Credit Facility contains covenants and other restrictions that, among other things, requires us to satisfy certain liquidity and borrowing availability tests, restricts our ability to execute MA transactions and to incur additional indebtedness. These restrictions and covenants, and those in other future financing arrangements, may limit our ability to respond to market conditions, to provide for capital investment needs or to take advantage of business opportunities.

On February 23, 2024, the Company amended the Credit Facility to extend the term to December 2026 and provide us with access to $17 million in current commitments which can be increased, subject to certain conditions, to $30.0 million.

 On March 25, 2025, the Company amended the Credit Facility to add repurchases of the Companys common stock of up to $1.5 million per year, consisting of up to $1.5 million in repurchases allowed during the period from March 25, 2025 through December 22, 2025, and up to an additional $1.5 million allowed during the period from December 23, 2025 through the maturity date, subject to certain liquidity and compliance conditions.

On August 29, 2025, the Company amended the Credit Facility to include a reduction to the Minimum Credit Party Liquidity covenant to $5.0 million. Upon the Companys delivery of a Liquidity Certificate evidencing liquidity of at least $6.8 million, the Minimum Liquidity Covenant Reduction Period will terminate and the covenant will increase to $6.8 million thereafter, and an Availability Reserve of $2.8 million during the Minimum Liquidity Covenant Reduction Period and $1.0 million thereafter. 

On March 13, 2026, the Company and its subsidiaries entered into Amendment No. 5 to its Credit and Security Agreement with MidCap Funding IV Trust. Under the terms of the amendment, the Companys minimum liquidity covenant was reduced from $5.0 million to $3.5 million during the Minimum Liquidity Covenant Reduction Period. This reduction period commenced on the Fifth Amendment Effective Date and is subject to extension at the Company's option on a weekly basis through May 9, 2026, provided it remains in compliance with certain fee payment obligations.

There is no guarantee that we will be available to repay or refinance our Credit Facility. Further, at any time, if we violate the terms of the Credit Facility, we may not be able to obtain a waiver from our lender under satisfactory terms, or at all, which would limit our operating flexibility and/or liquidity and which could have a material adverse effect on our business, operating results, financial condition, and cash flows.

We also rely on the availability of export credit insurance from the China Export Credit Insurance Corporation (Sinosure), a Chinese state-owned enterprise, that provides export credit insurance to our contract manufacturers. From time to time, our contract manufacturers have experienced reductions in the availability of such credit from Sinosure as a result of our failure to timely pay them. While we currently believe our contract manufacturers have insurance at levels that we believe are sufficient to fund our operations, there can be no assurance that such insurance will be available at levels we require for our business, or at all, whether or not we make timely payments to our vendors, which would have a material adverse effect on our business, operating results, financial condition, and cash flows.

In addition, the Company has cash deposits at financial institutions in excess of the insured amount of $0.3 million by the Federal Deposit Insurance Corporation.

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Our business is sensitive to the strength of the United States consumer market to a meaningful extent, and changes in consumer spending and economic conditions could adversely affect our business.

The strength of the U.S. economy has a significant impact on our performance. We are dependent on discretionary spending, which is affected by, among other things, unemployment rates, economic and political conditions worldwide, consumer confidence, energy and gasoline prices, interest and mortgage rates, the level of consumer debt and taxation, and financial markets, all of which are outside of our control. In particular, the ongoing conflict in Iran has contributed to increased gasoline and energy prices and heightened geopolitical uncertainty, which has negatively impacted discretionary spending at least in the short term, though these effects could be prolonged if the conflict continues or escalates. A continuing softening of demand, whether caused by changes in customer preferences, a weakening of the U.S. or global economies, or regional instability, may result in decreased revenue. We believe we have sustained a decline in the sales of our products in part due to the factors mentioned above, and any continued economic downturn or uncertainties in the U.S. or in other parts of the world could materially and adversely affect our business, operating results, financial condition, and cash flows.

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Risks Relating to the Litigation and Government Regulation

Claims, litigation, government investigations, product liability and recalls, and other proceedings may adversely affect our business, operating results, financial condition, and cash flows.

We are, from time to time, involved in various claims, litigation matters and regulatory proceedings that could have a material adverse effect on us. These matters may include personal injury and other tort claims, deceptive trade practice disputes, intellectual property disputes, product recalls, contract disputes, employment and tax matters and other proceedings and litigation, including class actions lawsuits. It is not possible to predict the outcome of pending or future litigation and any such claims, with or without merit, could be time consuming and expensive, and may require the Company to incur substantial costs and divert the resources of management.

We face exposure to product liability and other claims in the event that one of our products is alleged to have resulted in property damage, bodily injury or other adverse effects. In addition, if we are required to, or voluntarily, repair, replace or refund one or more of our products, it could have a material impact on our business, operating results, financial condition and reputation.

Determining legal reserves or possible losses from claims against us involves judgment and may not reflect the full range of uncertainties and unpredictable outcomes. Until the final resolution of such matters, we may be exposed to losses in excess of the amount recorded, and such excess amounts could have a material effect on our business, results of operations, financial condition, and cash flows. In addition, it is possible that a resolution of any claim, including as a result of a settlement, could require us to make substantial future payments, prevent us from offering certain products or services, or require us to change our business practices each of which could have a material adverse effect on our business, operating results, financial condition, and cash flows.

U.S. government trade actions could have a material adverse effect on our business, financial position, and results of operation.

Over the past several years, the U.S. government has taken a number of trade actions that impact or could impact our operations, including imposing tariffs on certain goods imported into the United States.

Throughout 2025, the U.S. govertrade environment's significa underwent tariff measures remain in effect, cena period of unprecedented volatility charactered ized by the implementation a 10% baselineof a broad reciprocal tariff applied to many imports, inregime. Utilizing the International Emergency Economic Powers Act (IEEPA), the additministration to countrimposed steep duties on nearly and product-specific rll imported goods, including a baseline 10% global tariff and targeted rates. Regar on major trading partners like China, the 90-day truce that was set to expiat reached historic highs before on November 9, 2025, has been supersea late-year temporary truce. These actions were compounded by a new one-year agreement. Effexpanded Sective November 10, 2025, this new deon 232 duties on industrial lowers metals and the cumuleliminative tariff rate on Chinese imporon of de minimis exemptions for low-value imports, significantly increasing our landed costs by 10 percentage pointsand requiring frequent adjustments to our pricing and extends sourcing strategies. While the suspensionse measures were the primary drivers of trade policy for much of other  year, theighter legal foundation remained tariffs a point of intense litigation until November 1early 2026.

On February 20, 2026. A 10% reciprocal tariff remains in effe, the U.S. Supreme Court ruled in Learning Resources Inc. v. Trump that the International Emergency Economic Powers Act during this period, and certain Section 301 exclusioes not authorize the President to impose sweeping revenue-raising tariffs, invalidating previous broad reciprocal duties. In respons have, the also been extended. For Canada, the 35% dministration immediately transitioned to a 10% baseline tariff on goods not covered by the United States-Mexico-Canada Agreement (USMCA), effective August 1under Section 122 of the Trade Act of 1974, effective February 24, 2026. These tariffs are subject to a 150-day statutory limit (expiring July 24, 2026) unless extended by Congress.

On May 7, 2025, has been f6, the U.S. Courther increased; of International Trade (CIT) ruled in Burlap an additd Barrel, Inc. v. Trump that these Sectional 10% 122 tariff was announcs are unlawful, finding the administration exceeded on October 25, 2025, raisingits statutory authority. However, because the rate on some non-USMCA goods to as high as 45%. TCIT limited its permanent injunction only to the specific plaintiffs in that case, the EU's negotiated 15% baseline tariff rate on itsfederal government continues to collect the 10% duty from all other importers, including the Company. We exportsect the administration to the U.S. remains in place. However,appeal this decision, and there is significant uncertainty regarding whether this rate is not universal, as key sectorse tariffs will be stayed, if Congress will provide a legislative extension, or if the administration will pivot to alternative authorities, such as steel, aluminum, and copper from the EU and other countrSection 301 investigations, to maintain or increase duty levels. Any prolonged collection of these duties continue to face much , or the imposition of higher treplacement tariffs, in some cases at 50%could materially increase our cost of goods sold and adversely affect our operating results.

These tariff actions, along with the potential for retaliatory measures, create uncertainty and may increase our product costs, disrupt our supply chain, and adversely affect our competitive position. In particular, continued or escalated trade and political tensions with China or other key trading partners could result in retaliatory restrictions that impair our ability to source products and components from contract manufacturers or service providers operating in those countries. Any sustained increase in tariffs, or the imposition of additional trade barriers, could materially and adversely affect our business, financial condition, and results of operations.

In addition to the tariff measures described above, changes in U.S. or foreign trade policy may create ongoing uncertainty in international trade relations. Future actions by the United States or other governments including the imposition, increase, or extension of tariffs, quotas, or other trade restrictions, or changes to existing trade agreements or policies could occur at any time and without notice. Any such actions, whether unilateral or in response to geopolitical or economic developments, could reduce demand for our products, increase our costs, disrupt our supply chain, reduce our profitability, or otherwise have a material adverse effect on our business, financial condition, and results of operations.

We are continually evaluating the impact of the current and any possible new tariffs on our supply chain, costs and sales and are considering strategies to mitigate such impact, including reviewing sourcing options and working with our suppliers. We can provide no assurance that any strategies we implement to mitigate the impact of such tariffs or other trade actions will be successful or that any newly sourced products will be of the same quality of those previously sourced elsewhere. Given the uncertainty regarding the scope and duration of these trade actions by the U.S. government or other countries, as well as the potential for additional trade actions, the impact on our operations and results remains uncertain.

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Risks Relating to the Ownership of our Common Stock

The market price and trading volume ofere is no guarantee of a continuing public market for you to resell our common stock may fluctuate significantly.

The mark.

There is no guarantee that we will continue to meet price and tradall requirements for continued listing volume of ouron the Nasdaq Capital Market. We must common stock has at times experienced substantial ntinue to satisfy Nasdaqs continued listing requirements, including, among other things, a minimum closing bid price volatility. There has been, and we expect will continue to be, significant volatility inrequirement of $1.00 per share.

On April 24, 2023,the Company received a notice from The Nasdaq Stock Market LLC (Nasdaq) indicating the market price and tradat, based upon the closing volumbid price of ourthe Companys common stock. In certain instances, these fluctuati, par value $0.0001 per share (Common Stock), for the last 30 cons haecutive been unrelated or disproportionate to our operating performance, financialusiness days, the Company was not currently in compliance with the requirement to maintain a minimum bid price of $1.00 per share for condition, and cash flows. In addition, ntinued listing on The Nasdaq Capital Market, as set forth in Nasdaq Listing Rule 5550(a)(2) (the market prBid Price Notice of our common). In response to the potential risk of delisting, the Companys stock may be, and we believe has been, significantly iholders approved granting the Board discretionary authority to implement a reverse stock split, and on March 20, 2024, the Company effected by investors coa 1-for-12 revering largse short positions in ourtock split of its common stock. In addition, there are many oThe Company subsequently regained compliance with Nasdaqs minimum bid price requirement in April 2024, and ther factors that have caus matter was closed.

On December 9, 2025, the Company received and may con notice from Nasdaq indicatinue to cause g that, based upon the market closing bid price of ourthe Companys common stock to fluctuat, par value $0.0001 per share, including: our announcement of our Boards temporary suspension of our sharfor the last 30 consecutive business days, the Company is not currently in compliance with the repurchase program, actual quirement to maintain a minimum bid price of $1.00 per share for aconticipated variations in our quarterly operating results, ornued listing on The Nasdaq Capital Market, as set forth in Nasdaq Listing Rule 5550(a)(2).

The Bid Price Notice has no immediate effect on the operacontinued listing results, financistatus of the Common Stock on The Nasdaq Capital condition, and cash flows ofMarket, and, therefore, the Company's listing remains fully effective.

The Company is provided a companiesliance perceived to be similiod of 180 calendar to us; deterioration and decline in general economic, industry and/or market conditions; changes in estimates of our financial results or recommendations by equity research analystdays from the date of the Bid Price Notice, or until June 8, 2026, to regain compliance with the minimum closing bid requirement, pursuant to Nasdaq Listing Rule 5810(c)(3)(A). If at any time before June 8, 2026, the closing bid price of the Common Stock closes at or above $1.00 per share for a minimum of 10 consecutive business days, subject to Nasdaqs discretion to extend this period pursuant to Nasdaq Listing Rule 5810(c)(3)(H) to 20 consecutive business days, including aNasdaq will provide written notification that the Company decision by ehas achieved compliance with the minimum bid price requity rement, and the matter would be research analysts to initiate or discontinue coverage; announcements by us or ourolved. If the Company does not regain compliance during the compliance period ending June 8, 2026, then Nasdaq may grant the Company a second 180 calendar day period to regain competitors of significant acquisitions, strategic alliances or joint ventuliance, provided the Company meets the continued listing requirement for market value of publicly-held shares; and changes in our call other initial listing standards for The Nasdaq Capital structure, such as future issuancMarket, other than the minimum closing bid price requirement, and notifies Nasdaq of securities orits intent to cure the incurrence of additional debt.

There is no guarantee of adeficiency during the second compliance period.

The Company will continue to monitor the closing bid price of its Common Stock and seek to regain continuing pubmpliance with all applic market for you to resell ourable Nasdaq requirements within the allotted common stock.

There ipliance periods. If the Company does no guarantee that we willt regain compliance within the allotted continue to meet ampliance periods, including any extensions that may be granted by Nasdaq, Nasdaq will requirements for continued provide notice that the Common Stock will be subject to delisting on the Nasdaq Capit. The Company would then be entitled to appeal Market. We must continuethat determination to satisfya Nasdaqs continued listing hearings panel. There can be no assurance that the Company will regain compliance with the minimum bid price requirements, including, among other things, a minimum closing bid price during the 180-day compliance period, secure a second period of 180 days to regain compliance or maintain compliance with the other Nasdaq listing requirement of $1.00 per share. s.

In the future, if our Common Stock falls below the continued listing standard of $1.00 per share or otherwise fails to satisfy any of the Nasdaq continued listing requirements, and if we are unable to cure such deficiency during any subsequent cure period, our Common Stock could be delisted from the Nasdaq. If our Common Stock ultimately were to be delisted for any reason, we could face significant material adverse consequences, including:

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As of the date of this filing, the Company has not yet received formal written confirmation from Nasdaq that it has regained compliance, as the closing bid price of the Companys common stock has been at or above $1.00 per share for 10 consecutive business days, ending on May 14, 2026.

The proposed Nasdaq minimum market value rule could result in the immediate suspension and delisting of our common stock without a cure period.

On January 13, 2026, Nasdaq filed a proposed rule change with the SEC (File No. SR-NASDAQ-2026-004) that would establish a new continued listing requirement. Under the proposal, companies listed on the Nasdaq Global and Capital Markets would be required to maintain a minimum Market Value of Listed Securities (MVLS) of at least $5 million.

If this rule is approved and we fail to maintain a $5 million MVLS for a period of 30 consecutive business days, our common stock would be subject to immediate suspension and delisting. Unlike other Nasdaq listing deficiencies, such as the $1.00 minimum bid price requirement, which typically allows for a 180-day compliance period, the proposed rule does not provide for a cure or compliance period. Furthermore, the proposal specifies that any appeal of a delisting determination under this rule would not stay the suspension of trading.

If our common stock is delisted from Nasdaq, it would likely trade on the over-the-counter (OTC) market. Such a move could:

There can be no assurance that the SEC will not approve this rule or that we will be able to maintain a market capitalization sufficient to comply with these new requirements. Any such delisting would have a material adverse effect on our financial condition and the value of your investment.

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